tv Nightly Business Report PBS March 4, 2010 6:30pm-7:00pm EST
captioning sponsored by wpbt >> tom: a dream deferred for many americans as they pass on buying a home in january. does that mean that uncle sam's incentives to spur buying are running out of steam before they run out all together? >> there's a great amount of nervousness among economists and analysts regarding what the housing market is going to look like. >> it doesn't necessarily mean that we're going to see the housing market dry up. >> susie: we look at what it will mean for the housing market in the near future. you're watching "nightly business report" for thursday, march 4. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
in january, down by 7.6%. susie, that's more troubling news about the nation's housing market. >> susie: tom, part of the blame goes to those nasty snow storms in many areas of the country. still, sales were better than a year ago. >> tom: but, no matter how you look at it the housing market is on shaky ground, and this spring, two important pillars of support will be removed. suzanne pratt tells us what they are, and why they matter. >> reporter: manhattan real estate agent warner lewis is a lot happier this march than he was a year ago. after struggling for months, business is definitely perking up. >> i do really feel that buyers and sellers have come together at a certain plane. and, things that are well priced that are coming on are flying off. >> reporter: to be sure, new york city's housing market is faring better than much of the nation. but, lately even battered areas in the south and midwest appear headed for firmer ground. experts says super low mortgage rates and homebuyer tax credits
have done a lot to end the free fall in home prices. but, this month, the federal reserve stops holding down mortgage rates when it quits buying mortgage backed securities. tax incentives for people buying homes run out at the end of april. economist dan greenhaus says the market may be too fragile to lose that artificial support. >> there's a great amount of nervousness among economists and analysts regarding what the housing market is going to look like upon the completion of those two programs. i count myself as one of those individuals nervous. >> reporter: some predict mortgage rates will spike up as much as a full percentage point when the fed exits the market. the absence of tax credits for homebuyers is harder to quantify. in the final months of last year, first timers accounted for half of the homes purchased in the u.s. historically, those buyers made up 40% of the market. experts say the way these programs work is to capture demand from the future. >> we would be foolish in assuming that we can borrow growth from future quarters to
support growth now, without some adverse impact on growth in the coming quarters. >> reporter: some expect the housing market to fall back into the basement as early as the summer. besides higher mortgage rates, there is concern about the three million foreclosures expected this year. others, like economist greg heym, say the end of government juice for housing will have only minor effects. >> in light of all the other challenges facing markets in some parts of the u.s., it's certainly something that we have to pay a lot of attention. by itself, it doesn't necessarily mean that we're going to see the housing market dry up. >> reporter: many experts predict the fed will return to the housing market at the first sign of significant weakness. if home sales and prices tumble, they say the central back could start buying mortgages again. suzanne pratt, "nightly business report", new york. >> susie: here are the stories in tonight's "n.b.r. newswheel". optimism about tomorrow's employment report sent the dow back into the black for 2010.
the dow gained 47 points, the nasdaq added 12, and the s&p 500 was up four. and there was reason for that optimism: new claims for jobless benefits fell last week by 29,000. tom will tell you more about analyst expectations for jobs later on in the program. and speaking of jobs, house lawmakers approved a $15 billion bill giving tax breaks to companies that hire the unemployed. the bill would exempt companies from paying social security payroll taxes on any new hires. the measure must be okayed by the senate, and signed by president obama. >> tom: citigroup is often described as the poster child for the phrase "too big to fail". the c.e.o. says that's no longer the case. speaking before congress, vikram pandit says citigroup owes the american taxpayers what he called, quote, a "large debt of gratitude". citi got $45 billion in tarp money back in 2008. it still owes uncle sam $25 billion of that. but the bank has also taken steps to shore itself up, boosting capital and reducing leverage. pandit told a skeptical panel
citi has scaled back to its core function-- banking. >> we're only as big as what is required to serve our clients in a competitive market. that's really important. but i completely agree with you that we or no other institution should be in a place where we get to a too big to fail situation. >> tom: pandit says citi won't need any more money from taxpayers, who already own more than a quarter of the bank's stock. the treasury is planning to sell its shares over the next year. >> susie: healthcare reform is still center stage at the white house today. health and human services secretary kathleen sebelius met with top health insurance executives. she asked them to explain huge rate hikes that some insurers have proposed, hikes that have angered many americans. aetna is one company proposing to raise rates, and its c.e.o. ron williams was at that session. darren gersh spoke with him afterwards, and began by asking how williams justified those
rate increases. >> i think the meeting was a strong focus on understanding the impact that these rate increases are having on working families. and individuals who may be reaching the limits of affordability for individual health insurance. and i think there was a opportunity to really have a constructive dialogue about what is driving that rate of increase and what do we need to do in order to make individual insurance affordable and sustainable long-term. >> you write individual insurance. are you charging people up to 40% more for their individual insurance. >> the answer is by and large no, we don't see those kinds of increases. but i think we have to start with the increase in the premium is based on the increase in the health-care cost. and so the premium is a cum lative result of how much more hospitals need and get in their renewals. some hospitals are asking 40% increases. we see increases in pharmaceuticals. we see increases in
physicians cost devices, et cetera. and then we've had something that really is an effect of the recession and the economy we've been struggling with. which is the younger, healthier individuals have ceased to purchase insurance so that the insurance pool is progressively composed of those individuals who tend to be older and sicker and use more services. >> your critics would say we think that the insurance industry, what they are really doing here is they are taking lot of their administrative cost and a lot of the costs that they have and they are piling them on the individual market because these folks don't have the power to buy that groups do. and it's unfair to individuals. >> yeah, which would say that first i would reject the premise, i think what we try to do is take individuals, pool them together into pools so that no individuals increase is based on their own individual health status or circumstances. we do have to reflect the increases we get in their geography in their particular premium. if the hospital in your community gets 40%, that's
going to show up in your premium. >> so you're not cost shifting from the big guys to the little -- >> no, we are not cost shifting from the big guys to the little guys. once of the things that often gets raised is the profit margins of our industry. and our profit margins are fairly modest on average. the industry earns about 1% of every health-care dollar. our company ranges a little more than 3% right now. >> bottom line question, dow expect that the president's plan, the democrats will pass comprehensive health-care reform in the next month or so? >> the answer is i do not know. i think that the president's plan and i would say at this point the proposal that we've seen does a good job of getting access, as it continues to unfold we'd love to see much more emphasis on cost because fundamentally affordability is the critical issue. >> one of the basic margins in the president's bill in the senate bill is that the insurance industry would get somewhere between 15 million and 20, maybe 30 million new
customers who would be, have access to health insurance. who didn't have it before. if the bill passes, are you going to get enough new business to make up for the costs? >> if the population that we bring in are people who have a real and legitimate need for health-care services, then we'll see the prem numb-- premium go up. and the reason that the industry has talked about having an insurance requirement along with the industry dropping the use of your individual health status, is so that we bring in that young healthy population which can average the premium out. so that is one thing about the volume. the second thing around profitability is i think that my experience is it's a function of how these programs are structured, what reimbursement levels will be available, and the whole regulatory framework. and so i think that my sense is the profitability associated with these cohorts are probably overestimated. >> ron williams, ceo of
aetna, thank you very much for your time. >> thank you. >> tom, have you heard all day a lot of investors and traders were making a big deal that the do you is now in the-- the dow is now in the black for the year. the improvement is so small 16 points higher from where the dow was in january. but i guess every little bit helps. >> yeah, you know, we'll take it. the thinnest of margins. the dow joined by the s&p and nasdaq now showing some green on the screen for the
year. let's take a look at that market focus, susie. the major market indices closed out the session near their best levels of the day. looking across stock sectors, though, it was a mixed day. consumer discretionary stocks narrowly outpaced financial shares to help to lead and lift the market. this consumer exchange traded fund is at a new 52-week high. the financial select e.t.f. tonight is at a six-week high, breaking out of its narrow range it's been in for the past week. meantime, energy stocks dropped as oil dropped after two days of gains. it was retail stocks specifically that added to the gains for the consumer sector, and those gains were fueled by a combination of earnings and february sales reports. it was a hot month for abercrombie and fitch. sales at stores open for at least 12 months were up 5%. compare that to the expectation
of a drop of almost 7%, and that's the making of an upside surprise leading to the big stock rally. zumiez saw an 11% rise in february sales. and that was against a forecast of a 1% drop. aeropostale sales jumped 7%. it wasn't all sales gains though, hot topic's february sales dropped 7%, but as you can see by the stock rally today, that sales drop was not as bad as feared. it was an earnings story for urban outfitters, turning in a record fourth quarter profit, easily beating expectations. it was a trifecta of record earnings, record sales, and a big jump in margins. shares turned in a better than 2% gain on average volume. in the past year, urban has more than doubled and is now less than $2 from a new 52-week high. one final note from retailing. walmart raised its annual dividend by 12 cents. shareholders will now get $1.21 per share, per year. w.m.t. stock was up fractionally. telecommunications networking company ciena saw heavier than
usual volume on today's 4% sell off. the drop takes the stock below its most recent lows over the past few weeks. ciena's latest quarterly loss was twice as big as expected, as it has delayed recording some sales. later this month, ciena will double in size as it officially takes over nortel's ethernet unit. a couple of separate court cases helped push volume in tivo today. it was the most actively traded big board stock today. tivo rocketed to its highest price in almost a decade after winning a federal appeals court ruling against dish network and echostar. the two have been held in contempt for continuing to infringe on a tivo patent for digital video recording. the decision could lead to tivo getting $300 million in damages. speaking of patents in dispute, semiconductor maker rambus won a mixed ruling from the u.s. patent and trademark office in
its infringement case against nvidia. the stock rallied on almost three times normal volume. in recent months, we've seen steel stocks rise and fall along with the confidence that the economy is gaining its strength. today a.k. steel jumped on heavy volume as merger rumors are circulating again, according to reuters. earlier this week, the company announced price increases for carbon steel products. and finally a.i.g. making another big move today. the latest fuel for speculation is the company is close to a $15 billion deal to sell its alico life insurance unit to metlife. >> susie: those strong retail numbers tom told you about are just one reason why our next guest is upbeat about the outlook for the economy and the stock market. he's keith banks, president of u.s. trust/bank of america's private wealth management. keith, welcome to nightly business report. >> hi, susie, good to be here. >> you know, every day we get one report that is positive about the economy, and the next day some disappointing report. can you connect the dots for us and tell us how is the
economy really doing? >> we think, susie, the economy is doing quite well. in fact, we're expecting 3% real growth this year in the u.s. and about 4 to 5% real growth globally. >> so in terms of what this all means for the stock market s it enough that's going to drive stocks higher? >> we think so. what a lot of people don't understand is that companies have reduced costs to a very large degree. they're very streamlined so it doesn't take a lot of revenue growth to generate quite robust earnings growth. and we think the combination of strong earnings growth and very strong free cash flow will be a good catalyst for the market to keep on performing very well. >> we've got to talk about jobs because everybody says as long as that unemployment rate is so high and americans are out of work, that that not going to be good for the economy or companies profits or for the markets. so how do you factor that? >> well, a couple of things.
you know, if you look at the unemployment rate of 10%, if you break it down between skilled labors and unskilled, skilled being defined not my definition, by the way, of focuses with a college degree or more, that unemployment rate's only 5%. now these are folks that tend to be higher earners and tend to spend more. so it is a troubling overall number but when you dissect it, it looks a little bit better. we actually also think that this will not be a jobless recovery. we're optimistic that jobs will be created. you are seeing it right now in how is work going up. temporary help is being hired at a very robust pace and we think that is precurses to jobs being created. >> a lot of investors are trying to figure out what the direction of the markets are. who thud should they be listening to, what the fed says about what they are going to do with interest rates or what ceos are saying about their quarterly earnings. >> i think you take a lot of factors into account. one of the issues right now is people get hung up in what i call the data point
du jour. they are so worried about each and every data point coming out that they are trying to make sense of it all. and as you said earlier, connect the dots. i think you have to take the aggregate picture into account. and as we do that, we feel optimistic that the economy is going to be good. corporate profits will be good. and we think the stock market will be good. >> i know you just raised your asset allocation for your average individual client at your firm. 65% in equities, 30% in bonds. what's the best advice you can give to our viewers' investors that if they have new money and they want to put it to work what they should do with it. >> it always depends upon their individual risk, circumstances. but the reality, susie, is if you are in cash or if you are in short-term fixed income type instruments, there's very little return or yield one the getting. we think given our outlook in the macro sense, the economy and for corporate profits, we would be telling people to begin to go out, seek some higher return, and increase their exposure to equities.
>> all right, lots of good information. thank you so much for coming on our program. >> great to be here. thank you. >> my guest tonight keith banks, president of u.s. trust bank of america. >> tom: over the past 46 years, lands' end has built a reputation on quality and customer service. now, it wants to be known for fashion. the retailer is introducing a new clothing line called canvas to appeal to younger shoppers. it's a new direction for lands' end which has been owned by sears for the last six years, after starting life in the catalog business. in tonight's "shop talk", erika miller looks at whether canvas
can put wind into the sales of lands' end. >> reporter: one of only two stores selling the new lands' end canvas line is this sears in paramus, new jersey. i asked lands' ends president nick coe, why new jersey? >> this is a great store in a great location. we have solid relationships with our customers in the northeast, so it just made sense for us to pick a store like this one and start to introduce this early. >> reporter: the other store, if you are wondering, is in wisconsin where the company is based. the goal of canvas is to appeal to younger, more fashion- conscious women-- and men. that means slimmer fitting pants, and brighter colors than the regular lands' end line. the styles are similar to what you find at j-crew and gap. so why will people shop here instead of there? >> when the customer experiences lands' end canvas, it's experiencing something with some real d.n.a., some truthfulness. it's very real. it's not a made up brand. it's very authentic.
>> reporter: there's another way lands' end creates customer loyalty: one of the most generous return policies in retail. customers can bring back any item, at any time, for any reason, and get a full refund. trend expert britt beemer says that's a major competitive advantage in a weak economy. >> when times are tough, people always migrate back to stores that take care of them first. because, i may be able to get something that's lower priced, but if i can't return it, it's still too expensive. >> reporter: but launching canvas is not without risk. retail analyst richard jaffe points to the difficulty of getting fashion right. >> execution is going to be a challenge. differentiating yourself from everyone else's white shirt, khaki pant. to be different or go beyond the basics both in brand identity and in product is a very big challenge. >> reporter: he thinks canvas would have better prospects if it were a stand alone store, not buried in sears. >> it's not so much sears.
it's that it's within sears, a multi-department store. so it's much harder to create this sense of identity. having a storefront on 17th and 5th is very visible and very desirable. >> reporter: so let's check out lands' end which is trying to broaden its appeal with its new canvas line. a key selling point is customer service. but it will have to get fashion right and establish a brand identity to be successful. lands' end is in the process of rolling out canvas in more sears stores. >> we should be in, i would say, somewhere between 20 to 50 stores. and that will be across the nation. it will not be clustered into one place. >> reporter: but already lands' end says its canvas strategy is working; about a third of customers buying the new line have never bought anything from lands' end before. erika miller, "nightly business report", paramus, new jersey.
>> tom: here's what we're watching for tomorrow. in a word: jobs. we'll find out how many jobs were lost or added in february. in a moment, we'll have estimates on what analysts are looking for when those numbers were collected and why that may matter. also on tap, january consumer credit. and, our friday "market monitor" guest is richard steinberg, president of steinberg global asset management. >> susie: a.i.g. has agreed to pay more than $6 million to settle claims it discriminated against african american customers. at issue, whether the insurer charged higher fees on loans made by a mortgage lending branch to black borrowers. the department of justice says it did for more than three years. the settlement is the first time a lender has been fined for letting race influence fees. the settlement money will go back to the affected customers, with victims getting about $2,300 each. >> tom: texas is forcing swiss bank u.b.s. to buy back millions of dollars of securities it sold investors. $200 million worth of auction rate securities to be exact. the reason, the bank allegedly misled investors about how safe those products were.
you'll recall the market for them froze up in february of 2008. that left investors holding debt that had lost value, and couldn't be sold. u.b.s. has also been fined more than $6.5 million by texas, money that will go into the state's general fund. >> tom: it's the most anticipated economic statistic every month, but tomorrow's data on the u.s. job market may be snowed under thanks to the
february snow storms. winter weather is expected in february, but of the two storms that slammed the mid-atlantic and northeast, the first one really may have put a pinch on any hiring. it hit february 10, right in the middle of the week when the government does its employment surveys, generating the data to come up with the reports we'll see tomorrow morning. susie, estimates for how many jobs were lost in february vary from 50,000 to upwards of 200,000 lost jobs. one saving grace may be that the census bureau began hiring, but that may not be enough to make up for the snow days. >> it was 9.7%, the last go around. now they are saying it inched up a bit to 9.8%. >> still below the double digit figure though which is a key line. >> that is nightly business report for thursday, march 4th. >> good night to you, tom. >> have a great evening. i'm susie gharib.
goodnight everyone, and goodnight to you too, tom. >> tom: good night, susie. i'm tom hudson. thanks everyone for watching. we hope you'll join us again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org